What are Unsecured Creditors’ rights when a company faces liquidation?

During liquidation procedures creditor interests must be kept to the fore and, as a group, unsecured creditors have rights in the process. All creditors within that group must be treated equally, although their position near the bottom of the repayment ‘ladder’ means that returns may be limited.

Initially, if an unsecured creditor has forced a company into liquidation, but feels that company assets may be at risk during the time between their petition and the court hearing, they can request the appointment of an interim liquidator to safeguard those assets.

Should the Official Receiver want to appoint a new liquidator, a meeting of creditors must be called within 12 weeks so that voting can take place.

Creditors’ meetings and the liquidation committee

Creditor meeting are normally held at the start of the process, and at the end, to present the liquidation accounts. Creditors with 10% or more (in value) of company debt can request further meetings in the meantime, however.

During the initial meeting creditors agree the liquidator’s fee, and can appoint a liquidation committee consisting of between three and five members. These are usually creditors with the highest claims. Their purpose is to assist the liquidator whenever they can, and to sanction certain actions.

Claiming interest on the debt

In some circumstances, unsecured creditors have the right to claim interest on their debt up to the liquidation date:

if the original contract allowed for interest

if interest was payable at a certain time under a written instrument, it may be claimed from the date it was due until the date of liquidation

if a written demand for payment had been sent, with notice that interest would be charged, it can be claimed from the date of demand to the liquidation date

Any interest claimed post-liquidation will only be paid if unsecured creditors receive full repayment from the sale of assets.

Ownership of goods held by the company

If the company is holding goods belonging to a creditor, they can claim ownership via the liquidator. Proof of ownership will need to be submitted along with the claim. The liquidator may then decide to reimburse the creditor, or allow the goods to be returned.

Bad Debt Relief

Unsecured creditors who have had to write off some or all of the debt are eligible to claim VAT Bad Debt Relief up to six months after the liquidation process has ended.

But what happens if a claim is rejected by the liquidator? Unsecured creditors have the right to appeal, and need to contact the liquidator in the first instance to see if any compromise can be reached. If this is unsuccessful, they have 21 days in which to appeal to the court for further adjudication.